Hey, Germans: Stop Saving, Start Spending Already!

WHY YOU SHOULD CARE

This investment whiz says Germany could become another Japan. That’d be bad news for governments and little guys alike.

December 29, 2014

Asoka Wöhrmann is the trillion-euro man. That’s how much he’s in charge of in his job as chief investment strategist at Deutsche Bank, a leading European bank and one of the largest dealers of foreign exchange in the world. The money he’s in charge of belongs to small-time savers and big investors — such as foundations and retirement funds — alike. “You should never be afraid of zeroes,” he quips good-naturedly on this visit to his office at the firm’s Frankfurt headquarters.

Big numbers no longer make the banker uncomfortable. But low interest rates do.

Once known as an economic powerhouse holding the continent together, Germany has certainly had its share of money troubles, with rising unemployment, slow growth and a tough demographic future. Most alarming for many has been a lack of homefront private investment from the Germans who do have cash to spare. Indeed, some experts are concerned that as the third quarter closes, the German economy — which already showed losses for the first two-thirds of 2014 — will contract into an official recession.

As the nation’s largest lender, Deutsche is, of course, not protected from all of this. But Wöhrmann, who’s of Indian origin, says he’s got a solution: Germans have gotta go out and drop big dough. That alone could spare them a recession. It’s one of several intriguing ideas he offered in a recent interview.

This interview, originally published Nov. 13, 2014, has been translated from German and edited for clarity.

OZY:

Mr. Wöhrmann, what would you advise a saver today to do with his or her money?

Asoka Wöhrmann:

I’d tell him to finally stop saving more and more, and instead to think about how to spend the money.

OZY:

Excuse me?

A.W.:

Germans save way too much. If you combine the money in savings accounts, day-to-day accounts and insurances, roughly 70 percent of our wealth consists of liquid assets — which are collecting hardly any interest these days. Once you factor in inflation, every saver actually loses part of his money year over year.

We will end up in the same place that Japan was …

— Asoka Wöhrmann

OZY:

Tell us about penalty interest.

A.W.:

The banks are eventually going to pass on to their clients what the European Central Bank is already asking of them. Every institution that deposits money in the central bank has to pay a sort of penalty interest of 0.2 percent. For now, the banks pass on this negative interest only to business clients, if at all. But it will also become relevant for private banking clients.

Asoka Wöhrmann is the chief investment strategist at Deutsche Bank.

Negative interest will be a moment of awakening for the savers. Hopefully many will realize at last that it does not pay off to have more and more money languishing in savings accounts. If every single one spends more money, it will help everyone.

OZY:

So Germany should go on a collective spending spree. Is that what you want?

A.W.:

Instead of saving ourselves poor, we Germans need to consume more and, at the same time, make sensible investments. That will liven up the economy — our own and in all of Europe. Germany is one of the few countries in Europe that can afford this and should live up to its responsibility.

OZY:

This call for spending is unusual coming from a high-ranking banker.

A.W.:

Germany desperately needs to get away from its excess export. We can’t continue to sell way more products and services to other nations than we in turn buy from them. This is an unhealthy development, especially considering that we do not seem to have better uses for this excess money than to park it in zero-interest accounts. We finally have to come to our senses and accept that the interest will not go up — at least not for another two years.

People are proud of German businesses, but they do not buy their stock.

— Asoka Wöhrmann

OZY:

What is going to happen if Germans continue to save this much money?

A.W.:

We will end up in the same place that Japan was in: a world of decreasing pay and permanently negative interest. If, on the other hand, we manage to revive the European economy, we will not have to worry about this kind of deflation scenario. We will see more investments and more economic growth — and, eventually, a return to higher interest.

OZY:

Why aren’t Germans doing more for their own investment habits?

A.W.:

It’s strange: People are proud of German businesses, but they do not buy their stock. Which means they are doggedly depriving themselves of the opportunity to yield bigger returns. It’s really hard to understand.

OZY:

What’s going on in the markets today?

A.W.:

Right now, the markets are being influenced very strongly by headlines. A bad number here, a political decision there, and already the prices are headed in one or the other direction. One thing is exacerbating this effect: All the big investors use very similar risk evaluation at the moment. But if all the alarms ring at the same time and everyone wants to go through the same door, it’s easy to panic.

OZY:

What if it’s a false alarm?

A.W.:

Unfortunately, we tend to only find out whether or not it is a false alarm after the initial shock has passed. We fund managers have to deal with that. Flash crashes will be even more frequent in the future. We just have to keep our cool. Irrespective of singular headlines, we always need a matter-of-fact evaluation of a region’s, country’s or business’ economic situation.

Frankfurt Stock Exchange.

OZY:

And what’s ahead for Germany?

A.W.:

We are cautiously optimistic. Germany does have some growth issues in the short run, but we can’t see a deep recession. That is why we expect stock prices to continue to rise.

OZY:

You’re in charge of a lot of money. How do you think about that?

A.W.:

When I was a relatively new hire at DWS, my superior asked me to prepare a currency deal. I made some calculations. When we sat down at the computer, I had all the numbers she’d asked me for, and knew exactly what was the interest difference and at what price the deal would be worth it for our investors. We did the deal, and my boss said, with a smile, that I had just moved 400 million D-marks. I was shocked. Until she said that, I had not been aware of the volume.

OZY:

And today? Still shocking?

A.W.:

No, you mustn’t be afraid of zeroes. Given that our funds often comprise several hundred million or even billion euros, it is inevitable that sometimes very high amounts of money have to be moved. I had to learn that, too. In my early days, again, I bought Australian dollars for 25 million marks. The first three days did not go well; soon I was down by 500,000 marks. I was very concerned. After seven days, I was up by 250,000 marks. I was very happy — my boss, less so. Because a profit of 250,000 marks has hardly any impact if the fund itself is worth 25 billion. The next time, I’d have to invest a lot more than just 25 million, he said; otherwise, I could just leave it be.